5 Mortgage Rules You Should Know by Heart

If you’re buying a house or refinancing your loan, here’s what you need to know.

For millions of Americans, a mortgage is the biggest debt they’ll ever have to repay. Unfortunately, as anyone who’s ever gone through the process can attest, mortgages involve pages and pages of legal documentation that can be nearly impossible for most people to comprehend. To simplify mortgages, there are some basic guidelines that anyone can learn and commit to memory. Below, we’ll go through five useful rules about mortgages.

Rule 1: Keep your mortgage payment to 25% or less of your income.

Housing costs are typically the largest expense item in your household budget, but that doesn’t mean you can afford to break the bank. Lenders look closely at your income to determine how much you can truly afford to pay for a monthly mortgage payment, and one simple guideline they use is to take your available income and multiply it by 25%. If a mortgage would require larger payments than that, after taking into account both the loan itself and associated payments like property taxes and insurance, then a lender will generally be less comfortable in giving you the loan.

Rule 2: Avoid private mortgage insurance by making a 20% down payment.

Mortgage lenders typically require borrowers to obtain private mortgage insurance or PMI if they make a down payment that’s less than 20% of the value of the home. PMI protects lenders against the risk that the value of the home will fall below the outstanding principal balance on the mortgage, leaving the borrower “underwater” on the loan. For borrowers, however, it’s an added expense that essentially provides no value to them. As difficult as it can be to save up a 20% down payment, the hundreds of dollars in PMI that it will save you could make the difference between being able to afford a slightly more expensive home and having to settle for less.

Rule 3: Understand how adjustable rate mortgages work and what risks are involved.

Fixed mortgages are easier to understand because the interest rate that they charge never changes, so you can count on monthly mortgage payments remaining constant throughout the lifetime of your loan. That’s not the case with adjustable rate mortgages or ARMs, which only remain fixed for a set period. Most lenders refer to ARMs with two numbers, such as 5/1. The first number refers to how long the initial rate remains in place. The second number describes how often the rate adjusts after the initial rate ends. For a 5/1 ARM, the initial rate stays in place for five years, and then changes every year after that. When rates change, they’ll also change your monthly payment, so make sure you understand the illustrations that your mortgage documents will provide so you don’t get a nasty surprise at the end of the initial term.

Rule 4: Know whether you’ll actually be able to deduct your mortgage expenses.

Many people look forward to being able to deduct mortgage interest, property taxes, and other key expenses of owning a home. But one thing to keep in mind is that all of these tax breaks are only available if you itemize deductions on your tax return. If the cost of your interest and taxes isn’t enough, when combined with other itemized deductions, to exceed the standard deduction you’re entitled to receive, then buying a home won’t do you any good from a tax perspective. That shouldn’t necessarily stop you from making a purchase and taking out a mortgage loan, but it should inform you as to the true cost of doing so.

Rule 5: Be careful diverting retirement money toward a home purchase.

The tax laws governing retirement accounts allow you to make withdrawals from an IRA of up to $10,000 toward a first-time home purchase without having to pay the typical penalties for early withdrawal of your retirement savings. However, just because you can use IRA money toward a home purchase doesn’t mean you should. First, even though you won’t owe penalties, you will owe income tax on the money you withdraw, potentially leaving you with a big tax shortfall at the end of the year. More importantly, diverting that money from your retirement savings will leave you in a less favorable position in the long run with the size of your nest egg. As a potential source of down payment money, tapping an IRA can seem like a smart move, but be aware of the long-term consequences before you pull the trigger.

Buying a home will probably be the biggest purchase you ever make. Being smart about the debt you incur to buy your home is essential to avoid the mistakes that so many homeowners made during the financial crisis. Keeping these rules in mind will take you a long way toward a better understanding of the mortgage process and your mortgage loan.

Source:  http://www.fool.com/investing/2016/05/28/5-mortgage-rules-you-should-know-by-heart.aspx?source=iedfolrf0000001

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17780 W Canto Bonito Lane Surprise, AZ 85387

$550,000

2 Beds

2 Baths

2,019 SqFt

Status Active

MLS # 6721721

Property Type Single Family Residence

Price Type --

Your ideal home awaits in the vibrant 45+ community of The Grand. This meticulously maintained Sierra model blends luxury and functionality. Updated in 2019, it features laminate plank flooring and tile in the bathrooms and laundry. The kitchen offers granite countertops, a glass backsplash, a center island, Maytag SS appliances, recessed lighting, and bay windows overlooking the courtyard. The oversized primary bedroom boasts bay windows, a walk-in closet, and a tiled shower with a frameless glass door. Enjoy a split guest bedroom, spacious den, new 2024 HVAC, and North/South exposure. Relax in your private courtyard and explore all The Grand has to offer!

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18001 N 46th Drive Glendale, AZ 85308

$550,000

4 Beds

2.5 Baths

2,620 SqFt

Status Active

MLS # 6751622

Property Type Single Family Residence

Price Type --

Come see this beautiful 4bed / 2.5 bath home located in the Belair neighborhood on the golf course! Take in the beautiful scenery in your own private pool - You've gotta see this one!

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14634 W Wethersfield Road Surprise, AZ 85379

$550,000

4 Beds

3 Baths

2,298 SqFt

Status Active

MLS # 6725415

Property Type Single Family Residence

Price Type --

This gem will surely impress you! Beautiful 4-bedroom property adorned with stone accents, a 2-car garage, and a welcoming front porch is the one! Inviting hallway ushers you to the captivating open layout, featuring tall ceilings, plantation shutters, a trending palette, and stylish tile flooring. The immaculately designed kitchen is fully equipped with an electric cooktop, double wall ovens, and a pantry. Sleek quartz counters, tile backsplash, white shaker cabinetry with crown molding, and an island with a breakfast bar elevate the space. French doors open to the sizable den! Primary retreat has plush carpeting, a private bathroom, and a walk-in closet. The home's elegance extends outdoors to the backyard with a covered patio, artificial turf, and a gazebo. Hurry! Don't miss out!

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2944 N Meadow Lane Avondale, AZ 85392

$550,000

5 Beds

3.5 Baths

3,630 SqFt

Status Active

MLS # 6741750

Property Type Single Family Residence

Price Type --

Garden Lakes Basement Home!! Discover your next home in the Garden Lakes community of Avondale, AZ. A true oasis in the desert landscape, Garden Lakes offers its residents the opportunity to boat, fish or just take in the view. This two-story residence with a basement boasts 5 bedrooms, 3.5 baths, and a 3-car tandem garage, situated on a desirable corner lot. With over 3000 sq. ft. of living space, the interior features granite countertops, a primary suite on the main floor with a Jacuzzi tub, and a wet bar in the basement. Recent upgrades include a new roll comp patio roof, newer tile roof with warranty, exterior paint, and AC units all replaced within the last 5 years. Ideally located near I-10 and 101 freeways, this home offers space, comfort, and convenience.

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2939 W Plum Hollow Drive Anthem, AZ 85086

$550,000

3 Beds

3 Baths

1,957 SqFt

Status Active

MLS # 6738833

Property Type Single Family Residence

Price Type --

Nestled in the guarded and private Anthem Country Club, this lovely 3 bedroom and 3 bath home features a 216 sq. ft. Casita and a 1,741 sq. ft. main house with two bedrooms plus a den. The secondary bathroom boasts an upgraded shower, while the primary suite offers double sinks, a separate tub and shower, and a walk-in closet. Hardwood floors adorn the bedrooms and den, and ceiling fans are installed throughout. The kitchen is equipped with stainless appliances, including a gas range and microwave, and skylights brighten both the master bedroom and kitchen. Additional amenities include a laundry room with gas and electric hookups, a two-car garage, and a low-maintenance backyard with no rear neighbors, making it an easy lock-and-leave property. See more info about the community... Residents of Anthem Country Club enjoy a luxurious lifestyle with resort-style amenities. Professionally managed by Club Corp, members get reciprocal privileges around the world. The club features two 18-hole golf courses (Golf membership not included) and two member restaurants. Fitness enthusiasts will appreciate the two state-of-the-art gyms, two pools, two spas, and several tennis courts. All surrounded by stunning mountain and golf course views. This guarded community offers an unbeatable combination of location and luxury, making it a must-see for those seeking a an elevated lifestyle.

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2045 E Orange Street Tempe, AZ 85281

$550,000

6 Beds

2 Baths

1,752 SqFt

Status Active

MLS # 6730083

Property Type Single Family Residence

Price Type --

Welcome to this beautifully renovated home, boasting a brand new facade with fresh exterior paint that exudes curb appeal. Step inside to discover a large open living space, freshly painted interiors and new flooring, creating an inviting atmosphere throughout. The kitchen showcases sleek quartz countertops, new appliances including a refrigerator and electric stove. Retreat to updated bathrooms boasting new vanities, and updated shower tiling completing the luxurious feel of this home. Step into the backyard ready for limitless possibilities and an RV gate! No HOA to tell you what you can or cannot do with your home! This residence epitomizes turnkey living at its finest, come see it for yourself !

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26264 N 43rd Place Phoenix, AZ 85050

$550,000

3 Beds

2 Baths

1,508 SqFt

Status Active

MLS # 6733415

Property Type Single Family Residence

Price Type --

NEW PRICE! Lowest in Tatum Highlands, WITH a pool included! NEW ROOF being installed and has already been bid. Come see this recently updated home in desirable Tatum Highlands. Backing to natural wash area for added privacy and quiet, this home has a sparkling pool for those hot Summer days! 3 well sized bedrooms with new carpet plus an additional den space make this home feel larger than it is. Vaulted ceilings welcome you into the home with a gas burner fireplace and open concept floor plan. Dining area leads into the well appointed kitchen with brand new appliances just installed for new owner. New paint, carpet, lighting and more are all finished. Come see this home today!

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1431 E Wood Street Phoenix, AZ 85040

$550,000

5 Beds

4 Baths

2,136 SqFt

Status Active

MLS # 6738358

Property Type Single Family Residence

Price Type --

PRICED REDUCED TO SELL. Beautifully remodeled property with R-4 multi family residential zoning on HUGE 19,996 sq ft LOT - Endless Potential! Offering immense flexibility, this property is perfect for investors or developers looking to maximize their return, with the potential to build multiple units or houses. Modern upgrades and high- quality finishes throughout the main house. Don't miss this rare opportunity to own a versatile property with significant development potential here in Phoenix.

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2522 N 11th Street Phoenix, AZ 85006

$550,000

3 Beds

2 Baths

1,111 SqFt

Status Active

MLS # 6742322

Property Type Single Family Residence

Price Type --

MOTIVATED SELLERS!!! Discover your dream home in the Coronado Historical District. This newly renovated gem features new windows, flooring, and tile throughout. The stunning kitchen boasts custom Euro-style cabinetry, quartz countertops, and new stainless steel appliances. Enjoy updated bathrooms and an enclosed laundry room with cabinetry and a built-in seating area, perfect for an artist studio or more. Open French doors for seamless indoor-outdoor entertaining in the courtyard. The home also offers a brand-new roof with a 10-year warranty, a new hot water heater, turf grass, and front-yard irrigation. Located on a quiet street, yet close to downtown, Roosevelt Row, and Phoenix Country Club. Modern comfort meets historic charm!

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14867 W Windsor Avenue Goodyear, AZ 85395

$550,000

4 Beds

3 Baths

3,098 SqFt

Status Active

MLS # 6744603

Property Type Single Family Residence

Price Type --

Get ready to fall in love with this spacious 4-bedroom home boasting 3 full baths, a versatile loft (easily convertible to a 5th bedroom), and a 3-car garage. Nestled in the beautiful Rio Paseo Community in Goodyear. This gem is right in the heart of an entertainment district, surrounded by fantastic restaurants, a theatre, shopping hotspots, walk/bike paths, waterfall pond, parks, and top-notch schools. Step inside to discover a formal living and dining area, a large open kitchen featuring a breakfast bar, granite countertops, and stainless steel appliances (including a refrigerator). Downstairs you'll find a convenient bedroom with a full bath. Home is complemented by stylish touches such as stone decor on the kitchen island, a single bowl kitchen sink, new blinds and laundry room with built-in cabinets. Upstairs, you'll be greeted by 3 generously sized bedrooms, including an expansive retreat with double doors, a remodeled ensuite with a separate soaker tub and a spacious walk-in shower, double sinks, and a large walk-in closet. The backyard offers a full-length covered patio, providing ample space for your creative vision. Not to mention, several upgrades have been made between 2022 and 2023, including partial roof replacement, new flooring, water heater, water softener, AC units, upgraded kitchen, and remodeled bathrooms. Conveniently located near the I-10 and Loop 303 Freeways. This home is move-in ready and waiting for you to make it your own!

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19314 S 208th Place Queen Creek, AZ 85142

$550,000

3 Beds

2.5 Baths

2,185 SqFt

Status Active

MLS # 6751638

Property Type Single Family Residence

Price Type --

New $11,000 PRICE IMPROVEMENT! Welcome to this beautiful & immaculate Gateway Quarter home. Attractive paver driveway, and charming covered front porch with perfect view of landscaped walking trails across the street. Inside a den/office could be 4th bedroom, and the very open great room & kitchen are perfect for Gatherings of loved ones. Recessed lighting, and durable tile flooring. Gorgeous kitchen w/ crown molding on cabinets, granite countertops, stainless steel appliances,gas cook top, a walk-in pantry, and an island with a breakfast bar for casual dining. The main bedroom offers soft carpeting, an en suite with dual sinks, and an enormous walk-in closet. Low maintenance backyard showcases a large covered patio, artificial turf, gravel and Perfect location, Just blocks away from Costco, Aldi, Target, so many restaurants, and a huge tranquil nursery to stroll through.

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501 W Jasper Drive Chandler, AZ 85225

$550,000

4 Beds

2 Baths

1,961 SqFt

Status Active

MLS # 6745933

Property Type Single Family Residence

Price Type --

***PRICED BELOW COMPS!*** Walk into instant equity in this unassuming gem in Chandler! Motivated Seller. NO HOA!! A great property with HUGE potential! This 4bdrm/2bth home on a large corner lot insulated in highly sought-after neighborhood of Thunderbird Estates in Northern Chandler. Down the street from Knox Gifted Academy (Ranked #1 AZ Public School) and Apache Park (Basketball, Tennis, Racquetball and playground). Home was remodeled in 2019 and included new roof and a/c. There is room for an addition or guest house in the backyard! The interior has all modern finishes. This home's exterior and landscaping is essentially a blank slate, just waiting for a new owner to make it their own! *Perfect for a light-flip or DIY homeowner! PROPERTY FEATURES: a LARGE, gated, pull-through RV pad.

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